The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

The Olympus Corp. accounting scandal reemerged on the front pages last week with news that Japanese prosecutors formally charged six former Olympus executives. The renewed allegations of a massive Enron-style fraud should serve as a clear call for robust whistleblower programs, not just in the U.S. but around the world.

Several months after news of the Olympus scandal first broke, it became clear how Olympus got away with concealing $1.5 billion in losses for more than a decade: The company’s internal “hotline” for whistleblowers was overseen by the very executives who allegedly designed and carried out the massive accounting fraud.

There can be little doubt that if the Securities and Exchange Commission (SEC) or Japan had an effective whistleblower program in place a decade ago --like that created by Dodd-Frank in 2010 -- there is a good chance the investment losses allegedly hidden for 13 years at Olympus would have been exposed much sooner and the damage to the company and its investors would have been far less. Rather than reporting information about wrongdoing to a sham hotline, employees would have had the incentive to provide it to the relevant enforcement authorities, which could have exposed and ended the scheme years earlier.

Some friends from abroad have remarked that whistleblower enforcement mechanisms could never work in their countries because cultural barriers against them are too high. But initial data collected by the SEC Whistleblower Office following the passage of Dodd-Frank show that such assumptions are badly outdated and that cultural impediments to whistleblowing in Europe, Asia and elsewhere are quickly eroding.

In just the first seven weeks after the SEC Whistleblower Office was established last August, the agency received 334 whistleblower submissions, dozens of which came from individuals living outside the U.S. These cases involve securities frauds or corporate bribery occurring overseas, though with significant consequences to investors and markets here in the U.S.

There are two reasons so many whistleblowers overseas are submitting their allegations to the SEC. First, Dodd-Frank offers time-tested financial incentives and protections for knowledgeable insiders who report serious securities law violations. Second, similar alternatives do not exist for whistleblowers in their own countries.

The Dodd-Frank statute assures that, no matter where they live, those who take the personal and professional risks of stepping forward will be rewarded by the SEC with 10 percent to 30 percent of the amounts the SEC and related enforcement efforts recover as a result. The law also offers whistleblowers confidentiality (even anonymity) and provides redress for employment retaliation the whistleblower may suffer.

But in cases involving corrupt business practices that aren’t covered by U.S. laws, potential foreign whistleblowers have few, if any, places to turn. In our firm’s practice, there have been some instances where overseas whistleblowers have come to us with stunning allegations of corruption and high-level bribes in the tens of millions, but the particular matters are outside the reach of the SEC. Those wrongdoers escape enforcement attention because there are few mechanisms outside the U.S. that reward and protect knowledgeable insiders for high-quality evidence of wrongdoing.

The fact that whistleblowers from abroad are seeking effective enforcement mechanisms outside their home countries should be a wake-up call to policymakers and legislators in other countries that anti-corruption efforts are greatly assisted by whistleblower information and resources. With growing intolerance for fraudulent and corrupt business practices around the world and grassroots calls for greater corporate transparency, robust whistleblower alternatives to address corrupt and unethical business practices should be a universal policy priority.